Brazil GDP grows at half forecasted pace as investment dives

Brazil’s economy expanded in the third quarter at half the pace forecast by economists, as government stimulus efforts fail to revive investment that fell for the fifth straight period. Rate futures plunged.

Gross domestic product grew 0.6 percent in the third quarter, the national statistics agency said today in Rio de Janeiro. That was less than the forecasts of all 54 economists surveyed by Bloomberg whose median estimate was for a 1.2 percent expansion.

President Dilma Rousseff’s government has slashed interest rates to record lows, cut taxes and boosted spending over the past 12 months to prop up an economy heading toward its worst two-year performance in a decade. While the efforts are keeping retail sales buoyant amid a global slowdown, companies are holding back on investment. With growth still patchy, the government is now focusing on reducing production costs.

“Today’s report was awful,” Neil Shearing, who was forecasting below-consensus 1 percent growth as chief emerging markets economist for Capital Economics Ltd, said by phone from London. “The really disappointing thing about today’s data is that despite all the policy stimulus over the past year it’s clear the economy is still struggling to get going.”

Growth on an annualized pace was 2.4 percent in the third quarter -- below a government forecast this month of 4.7 percent -- and GDP expanded 0.9 percent from a year earlier. That’s the worst performance in the BRIC group of major emerging markets that includes Russia, India and China.

Interest-rate futures fell across the board after the release of the report. Yields on the contract maturing in January 2014, the most-traded in Sao Paulo, fell 9 basis points to 7.22 percent at 9:50 a.m. local time. The real declined for a fourth straight day as investors speculate the government may step up efforts to weaken the currency to aid manufacturers.

Investment Decline

Even though quarterly growth was the fastest since the first quarter of 2011, investment fell 2 percent in the July- September period to 18.7 percent of GDP. That’s the steepest decline in five quarters. Consumer spending rose 0.9 percent, while the services sector was flat. Agricultural activity led all industries, expanding 2.5 percent.

At the current level of investment, the government will have trouble reaching its goal of delivering 4 percent growth next year. Even the more modest growth forecast by economists this year of 1.5 percent may have to be revised downward, said Vladimi Caramaschi, chief strategist at Credit Agricole SA’s Brazilian unit.

“After so much stimulus, investment is even worse than in the second quarter,” Pedro Tuesta, senior Latin America economist at 4Cast Inc., said by telephone from Washington. “If investment doesn’t rebound then we are in trouble in 2013.”